HR Out sourcing T oolkit This toolkit presents you with SoftEx's thought leadership materials that help you focus on maximizing your human capital r egardless ofthe economic outlook. The HR Outsour cing Toolkit gives you four (4) complimentary tools in one PDF fle to help you discover: Options for handling your HR function Why 3 small companies chose integrated HR outsourcingWhat is a PEODue diligence for teaming with a PEO Teaming With a Professional Employer Organization(PEO) Moreu AProessional Employer Organization serves as an outsourced human resources departmentproviding comprehensivee mploymentservice s such as payroll and benefts administration,HR management,and assistance with employer compliance. APEOservesasyourstrategic HRpartnerthat canhelp: • Attract and retaintalent • ContainrisingHRcosts • Create efciency • Minimize liability and exposure torisk AShared Employer Relationship When working with a PEO,your company enters intoa shared employmentre lationship.The PEObecomes the “EmployeroRecord” and is responsibleor payroll and payroll tax compliance,bene fts administration,workers compensation,processing unemploymentclaims, and other HR-related administrativetasks. Your company remains the “Worksite Employer” and continues toretain day-to-day control and direction otheworksite employees. How Does a PEO Work?
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The upside to nding a single vendor is that you manage a single relationshipand gain HR expertise, HRIS technology, and a qualied team to manage your HR
function. This saves time and cost in the long term. However, the downside is you
must nd the right HR partner—one that tailors its services and cost structure for
your specic industry—because a wrong choice is a costly one.
In general, PEOs can manage your organization’s HR functions better and more
efciently than if you did it yourself — allowing you to stay focused on your core
Pros Cons
Single point of contact Perceived loss of control
Reduced time spent managing providerrelationships
Some favor current vendor relationships
Reduced employer-related liability Cost, depending on the situation
Why They Chose Integrated HR Outsourcing: A Look at Three Small Companies
The time and effort of managing multiple
vendors can often
offset the up-front cost
savings.
IntroductionPicking through the white noise about outsourcing can be time consuming and
tedious. And while you’re busy doing all that research, your company’s payroll and
benets problems aren’t going anywhere. You need to outsource—but you’re not
clear on the alternatives available to you.
If you’re in this position, these case studies are designed for you. They provide a
research tool for smaller companies by describing the reasons why three companies,
all under 100 employees, decided to outsource their human resources to an HR
service provider. It presents a picture of what other companies have done when
faced with the challenge of wading through a crowded vendor landscape, evaluating
their alternatives, and making a nal decision.
Who Should Read This?
You will want to read this document if you are evaluating HR outsourcing alternativesfor a company between 1-100 employees. The proled companies are honest about
both their reasons for choosing their HR provider, as well as the challenges that
drove them to outsource. Reading their stories will provide you with the context you
need to understand HR outsourcing.
Companies Face Several Alternatives
Outsourcing isn’t the only answer. Most small companies face a complicateddecision path when deciding what to do with business non-core functions.
This is because small companies, even moreso than their larger counterparts, need
Why They Chose Integrated HR Outsourcing: A Look at Three Small Companies
Cons
A smaller company may not have the time and resources to build such an
infrastructure. That time may better be spent on developing the company’s product
or service. It’s also possible that the right HR provider—which forms a true “match”—
may indeed be able to contribute to the company’s internal culture by streamlining
processes and offering high-level HR expertise.
Multiple VendorsPros
If the decision is made to outsource the HR function, companies may choose to
seek out providers that handle disparate functions. For example, they may select
a benets broker and a separate payroll provider. The advantage to this approach
is cost driven; a company can generally spend less on providers that specialize in
handling one particular function. That’s because single-function providers tend to
do large volumes of business in order to keep their price point low.
Cons
The time and effort of managing multiple vendors can often offset the up-front cost
savings. This is particularly true if the vendors deal with related functions—such
as payroll and benets—but use separate systems or databases to do so. These
means that the functions aren’t integrated and can often prove extremely difcult to
manage properly. In addition, “large volume” providers may not offer the individualattention or the range of services that the company truly needs, undermining the
Why They Chose Integrated HR Outsourcing: A Look at Three Small Companies
Case Study: HoloTech Interview: Alex Logan
The Background
HoloTech was founded in 2002 with the objective of becoming the rstcompany to bring holographic data storage technology to market. HoloTech has
solved several fundamental problems associated with holographic storage, including
the creation of a viable storage medium, and the systems expertise required to
record holograms. The result of more than ten years of groundbreaking research in
holographic storage has culminated in a state-of-the-art media and drive.
The Challenge
The need for an attractive benets package played heavily into the decision to
outsource, but there was another consideration as well: keeping our company’ssmall staff focused on our core competency. That meant creating an infrastructure
that eliminated the need for an HR manager or administrator. Doing so would help
the company save on staff costs, as well as ensure that our employees kept their
focus on perfecting our holographic storage technology.
What alternatives did you seek?
Because of our need to ofoad as many administrative positions as possible, we were
interested in an integrated service provider. We decided to hire a vendor who could
handle the entire range of HR functions. This would allow us to expend an absolute
Why They Chose Integrated HR Outsourcing: A Look at Three Small Companies
Case Study: DesignForm Inc.Interview: Carl Potter
The Background
DesignForm, Inc. allows people with no technical experience to convert their existing
paper forms (PDF, HTML, Flash, ASP or MS Excel), into secure, Internet hosted forms,
in 5 minutes, with no programming. As forms are submitted, the encrypted results
are downloaded directly to the form owner’s desktop database, saving time and
eliminating errors caused by manual re-keying. Our whole value proposition reects
the importance of collecting information and data from users in a cost efcient and
timely way that doesn’t allow for mistakes.
The Challenge
We’re a small organization that expects to experience rapid growth during the next
several years. We consider HR to be a vital function, but it doesn’t increase leads,
develop products, service customers, sell products, or bring money in the door.
We had initiatives to fund, and we didn’t want to invest in servers, software, or HR
experts.
What alternatives did you seek?
We initially thought we could outsource payroll and handle the rest in house. Weused a basic payroll service for eight months, which worked okay but we didn’t
get access to other key HR functions such as benets and 401(k) programs. We
eventually realized that an integrated provider was the right choice
Why They Chose Integrated HR Outsourcing: A Look at Three Small Companies
Although we were already far down the road with our rst choice of providers, weresearched other companies on the y and found SoftEx. When I visited SoftEx’s
site, I was pleased that I could log in, ll in my information, and get a quote back–all
without having to pick up the phone and talk to someone. I realized that this was a
company that understood the advantages and efciencies of electronic data capture,
just like DesignForm. Additionally, SoftEx’s site has exceptional social networking
In my previous company, I employed a whole staff of people to provide the same
services that we now have with SoftEx . By outsourcing HR, we need virtually no
administrative employees, we have lower costs, we get better selection, we can scale
to meet our growth requirements, and we save trees (due to SoftEx’s range of online
services).
acting as the “employer” for critical information that they would expect to be handledby DesignForm. For this challenge, SoftEx’s technology helped because most HR
tasks can be done online quickly. The less time people have to spend thinking about
HR the better. Once employees started selecting benets and managing their HR
information online, any concerns regarding the outsourcing arrangement seemed to
go away.
What Would You Recommend for a Company in Your Position?
Outsource HR and focus your resources on activities that generate sales and improve
prots
capabilities, and social networking is great for employee retention and morale.
The only issue was getting employees comfortable with the idea of SoftEx
The term “PEO” stands for Professional Employer Organization. PEOs providesmall-medium size companies with outsourced human resource services, specically
employment and HR management services. PEOs are not stafng companies.
Traditionally, PEOs manage functions such as payroll, employer tax compliance,
employee benets, workers’ compensation , and government compliance, but
those services have steadily expanded to include optional services such as talent
acquisition, employee training, and performance management.
The website of the National Association of Professional Employer Organizations,
NAPEO (www.napeo.org), explains that PEOs bring value via:
• Relief from the burden of employment administration.
• A wide range of human capital strategy and guidance services offered via a
team of experienced professionals.
• Improved employment practices, compliance, and risk management to
reduce employer-related liability.
• Access to a comprehensive employee benets package, allowing smaller
companies to be competitive in a tight labor market.
• Assistance to improve productivity and protability.
PEOs’ Unique Selling Point: HR Isn’t Your Main Business
The reason for the existence of PEOs and the primary selling point for their business
model is this: as an entrepreneur, you did not enter into business to become a
human resources manager You have no interest in contending with payroll twice a
Benets of the PEO modelThe advantages of the co-employment model are substantial.
One: You don’t have the time to waste.
With a product to develop and a business to grow, the last thing you probably
want to do is spend time mastering the universe of complex employment related
regulations.
Furthermore, a large part of the HR function is assessing, negotiating for, and
providing benets options for your employees. This will also be a drain on your time,
even if you engage with a benets broker. There are options to wade through and
many negotiations with carrier representatives to tackle.
If you choose to outsource to multiple vendors, you run up against the same
problem. It takes time to manage these relationships individually and make sure they
work together without problems or errors. Imagine having to inform each of yourvendors about any changes in manpower, or coordinating both internal and external
systems that affect payroll and/or benets. The opportunity cost of all this effort can
be substantial.
The highest and best use of your (or your HR person’s) time is in building your core
business. You cannot be as efcient as a PEO’s service team of professionals. You
should be focused on perfecting your product and building a market. Anything else
is a step backwards.
Two: PEOs can position you competitively in the talent market.
Alternatively, if you negotiate for benets plans on your own, you’re spending time
evaluating vendors. And to those benets vendors, you’re just one small company.
If PEOs pick a benet plan, it’s a benet plan for thousands of people. It contains
options and plan features that smaller companies simply can’t obtain, much less
afford.
The best PEOs offer a wide range of benets, not forcing any one medical, dental
or plan on an employee but rather emphasizing exibility and choice in regards to
multiple plan options. This same strategy is in play in large companies.
Three: PEOs employ HR professionals that understand your business.
It’s likely that you either don’t employ HR professionals at all, or have staff with more
strategic issues at top of mind than HR concerns and employee administration. A
PEO can help. A top-quality PEO will employ human capital consultants who are
familiar with your specic industry, enabling them to anticipate and resolve your
problems and act as a true strategic partner. They can assist you with interviewingstrategies, training, performance management—even succession planning. They
can be a genuine asset to your company’s growth and success.
Four: PEOs help minimize your company’s risk.
Your organization needs people to operate the business, but at the same time, those
very resources — those human resources -- are in and of themselves a liability. In
fact, your company may be at risk of running afoul of a mineeld of employmentlaws. There are only three things you can do with such risk:
• Ofoad every bit of employer-related risk that you can.
Minimizing risk simply means taking a proactive versus reactive stance towards
liability. People are typically putting in these components in their business after
going through a certain amount of pain — perhaps an expensive lawsuit or a heavy
ne. It makes more sense to prevent these hardships. An ounce of prevention is
worth a pound of cure.
Due Diligence in Choosing a PEO: Seven Tips
Selecting the right PEO to partner with is a critical decision for your organization.
You need to align yourself with a trusted player in the PEO industry. Here are some
tips on nding the right PEO:
1. Find a legitimate and stable PEO. Select a PEO partner that has been around for
some time, and looks stable in its nancials as well as in its systems. Look at theirhistory and their credentials. The best PEOs generally have accreditation from the
industry’s “watchdog” organization, the Employer Services Assurance Corporation
(ESAC). ESAC continually monitors HR outsourcing rms for adherence to important
nancial, ethical, and operational standards. Another good resource for information
on quality providers is the National Association of Professional Organization
(NAPEO) website (www.napeo.org).
Be sure the PEO can serve your employees in all geographic areas where you haveemployees. Some of the larger PEOs provide service in all 50 states, and some offer
3. Understand how you are being charged. There are two basic ways PEOs charge
their customers. There’s the break-out model, where you are shown what each
category costs: workers’ compensation insurance, benets, service fees, etc. And
then there’s the bundled model where payments are grouped together in various
4. Look for better benets. Benets are a key way to attract and retain the talent
you need to remain competitive. You simply can’t skimp on them. To make the cut,HR outsourcing candidates should offer a package that provides all the benets that
large companies offer their employees. Features should include:
• A wide range of options for each employee to choose from
• Coverage for new hires with little or no waiting period
• No pre-existing condition exclusionary clauses
• No individual underwriting
• Guaranteed issue coverage
Make sure the HR provider oers a stable health care provider network
with modern administration systems. The Health Care Reform bill ensures that
either you or your PEO will be respon sible for your employees medical benetsbeginning in 2014. It will be expensive and time consuming without the
right partner. If doing it on your own, you will need to add employees to
A Full Suite of Benets and HR ServicesOne of Asset’s biggest concerns was the cost of healthcare; it just kept rising and
rising. Penny points out, “With SoftEx, we’re able to join forces with thousands
of other companies to get the purchasing power we need to obtain high-quality
benets. Offering generous benets is in sync with our rm’s strategy for keeping
and retaining people, as we also offer generous compensation and a 401(k) match.
So getting premium benets packages from SoftEx is a logical step.”
He continues, “We gain other advantages as well. Prior to engaging SoftEx, wehad no employee handbook, no policies or processes written down, and no real
documentation for workforce management and administration. That’s a dangerous
way to go — but SoftEx provides the infrastructure we need.”
A Long-Term Strategy
The self-service features are benecial to Asset’s team as well. “We like being able
to tell our employees that all they’ll need is a computer screen and a phone number
to resolve most of their issues. SoftEx handles the rest.”
Having SoftEx as a single point of contact for Asset Management’s entire HR
function has proven to be a durable long-term strategy for the rm. “It’s a
partnership that I intend to continue. It allows us to keep our focus on our portfolio
companies. It really has worked great for us.”
More information on PEOs
Visit the National Association of Professional Employer Organizations (NAPEO) at